Can For-Profit Colleges Save Higher Education?

September 8, 2011

For-profit colleges are on the ropes. Damaging congressional investigations, a bruising fight over new federal regulations and a stagnant economy have all combined to reverse what had been unprecedented growth in for-profit enrollments. As Bloomberg BusinessWeek reported last week, financial analysts now see an outlook for proprietary colleges that ranges from uncertain to gloomy, says

Andrew Kelly, a research fellow at the American Enterprise Institute.

Consumers and investors have reason to be wary.

Federal statistics indicate that 25 percent of all for-profit students who started repaying their loans in 2008 had defaulted three years later.

In public colleges, the comparable figure was just 10 percent.

Although for-profits enroll only about 10-15 percent of all students, their students make up about 47 percent of all three-year loan defaults.

By 2015, new federal regulations will cut off student aid dollars to for-profit programs whose graduates struggle to pay back their loans.

So what do the for-profits have to offer? Kelly sees three things:

First, the for-profits have shown an ability to grow and expand their capacity.

Third, the for-profits have shown a knack for getting students over the finish line in their two-year programs.

This is not an argument for or against for-profit colleges as currently conceived. Providing expertise, infrastructure and services to willing, entrepreneurial partners in the non-profit and public sectors would enable for-profits to accomplish two goals.

First, the model would shift much of the risk inherent in educating nontraditional students to their partner organizations and provide for a more politically stable revenue stream.

Second, this new arrangement would clearly harness their wealth of knowledge and innovative spirit to the nation's new higher education goals.